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31 October 2012

The DG 3 Dog and Pony Show #nlpoli

Big Show.

Room full of people all there because they have a direct interest in the project.

Live streaming by the news media.

And all to release the latest cost estimates for Muskrat Falls. The show was so big, however, that it looked like someone had decided to puff the whole thing up to make it appear much more important than it was.

That turned out to be a fairly accurate impression.

Take the cost estimate for starters. It isn’t finished. Emera is still working on the revised estimate for the Maritime Link. As a result, the number news media are bandying about – $7.4 billion – is a floor and it is a long way from any final number.

We’ll come back to the cost estimate in a second.

Then there’s the work by Manitoba Hydro International.

The review by Manitoba Hydro International is a carefully constrained review of Nalcor’s assumptions and produces – not surprisingly – the conclusion Nalcor and the provincial government wanted from the public utilities board but couldn’t get.

When you set up the boundaries of a review you get to determine the range of possible outcomes, and in this case Nalcor got the endorsement they craved for their marketing campaign.

Nalcor and the provincial government – as proponents of Muskrat Falls are putting huge stock in their consultant’s conclusion. They’ve produced a slick little backgrounder that touts the independence of the consultant they hired. They use the word a lot. There’s even a headline that touts MHI’s endorsement of the project.

MHI’s work wasn’t independent, of course, since they were contracted by the project proponents who determined the scope of the work they paid for and provided the information to work with.

Now that’s odd…

All the same, others will run through MHI’s review and note the good, the bad, and the ugly aspects of it.

One curious aspect of the MHI report that someone will likely dissect in short order is the generating capacity assumptions MHI used for the two scenarios it reviewed.

The Muskrat Falls option is described this way:

largely a hydroelectric generation plan, with 824 MW from a hydroelectric generation station and 670 MW from thermal generating stations.

What that means is Muskrat Falls, with an actual firm capacity of 515 MW as well as 520 MW of new thermal generation primarily to be used for system stability.

Yes, friends. There’s that 520 MW of brand new thermal generation generation some people – including some folks at Nalcor – found so confusing. So that’s 1035 MW of generating capacity of which only half is actually used regularly to supply electricity to customers. Give them the full values MHI uses and you have 1490 MW.

But in the isolated island scenario, they talk about 1890 MW of thermal generation.

Now that’s just from page four and a very quick read but it seems rather odd that the isolated island option requires more than three and a half times more actual installed generating capacity than the interconnected option even though both are supposed to meet essentially the same island demand load.

One potential implication: if you chop the amount of fuel needed in the thermal option, you wipe out Muskrat Falls’ advantage in Nalcor’s contrived scenario. It’s seems way too obvious to be true, but it is.

So if there’s a mistake in the assumptions about generation and – for argument’s sake – the isolated scenario doesn’t need all that thermal capacity, it wouldn’t need all that fuel that goes with it.

Anyway, maybe there’s a simple explanation. Maybe your humble e-scribbler has got the wrong end of the stick. If that sort of curious situation turns up on page four of an 84 page document, though, odds are very high there will be lots more in the MHI review to chew over.

The Cost Estimate

In the meantime, let’s go back and look at the cost estimate for the dam and line to Soldier’s Pond.

In 2010, Nalcor estimated that the dam and line would cost $5.0 billion. The total cost of the project was supposed to be $6.2 billion.

The new cost is $6.2 billion. That looks like an increase of $1.2 billion or 24%.

Take out the contingency funds and look at the estimates again. In 2010, they included $1.1 billion for cost over-runs. In 2012, they apparently included $730 million for cost over-runs.

A little quick math and that gives you an original estimate of $3.9 billion with a revised cost of $5.47 billion. That’s a 40% increase.

Not quite so pretty is it?

Again, as we all learn more details and as people start to pick things apart, the picture will get much clearer.

If this is any indication, though, the hype surrounding these latest Muskrat Falls numbers will be like the cabinet shuffle: huge piles of hype and very little of substance on delivery.